How the market discounts future events - like BHO

Someone asked me how I could put all these market actions at the feet of BHO and his SMDC before they have even taken office?

 

Well, the stock market is a discounter of future events, in other words, it does not look back it looks forward and tries to determine where the economy will be 3-12 months from now. People don't invest for the past, they invest for the future so when someone buys a stock (goes long, we say) and then another and then another, we have a surplus of buyers over sellers and the price goes up as more buyers have to "pay up" for the stock to get sellers to give up their stock. It's that simple.

 

So what happens when the market falls? The reverse happens. Investors believe that their investments are going to be worse less tomorrow, next week, next month so they sell their positions ("close") to someone that thinks they are wrong. However, in a market crash like what we are experiencing these days, sellers largely outnumber buyers so the laws of supply and demand take over, and sellers have to lower their asking price (the offer) to get buyers to take a risk that the market will not materially continue down or else they will soon become sellers as well (a bull squeeze or trap).

 

So what does this market crash since BHO's victory 2 weeks ago mean? It's very simple: the market (all the investors rolled into one large, bio-economic mass) are discounting that he is not going to be able to solve the problems of this economy, and in fact, they believe that he is going to make it worse with his hand-outs, bail-outs, tax hikes, and generally socialistic ideas and agenda.

 

Thus, investors are taking their money out of the US markets and putting them in cash so that they get taxed at a lower capital gains rate that BHO promised he would "raise on the rich". Well, who are the only people that have large stock portfolios with lots of recent capital gains to protect? THE RICH!!!!!!

 

The market is simply doing what it has always done is prepare for the future 3-12 month from now. They are saying that its not going to be a pretty picture for investing in the USA so, "Asta la vista, baby!"

 

The market will find support wallow around for the next 6-7 months and then slowly begin to recover. Remember, those that are getting out of the market in droves are not going to be coaxed back into the market until they have assessed the damages and have licked their wounds. The public will take some time before they begin to recommit their retirement money to the market.

 

So, can BHO be responsible for this market crash? Yes, but only because of his talk and promises. If he follows through, its priced into the market, as we say. If he moves to the center (which I don't think he will) given that he is really, really smart (wicked smart) as many think he is, he will understand that by doing what he promised will only produce what Obamamanites are saying, "He is the new FDR", and give us the 2nd Great Depression.

 

Many believe we can't go into a Great Depression, but with all the liquidity being thrown around and interest rates near zero, we could something worse: hyper-deflation followed by hyper-inflation. The worst of all financial whipsaws! The proverbial 1-2 punch back to back.